Bankruptcy Basics

Bankruptcy Can Give You a Fresh Start. Some basic facts:

·     You can choose which type of bankruptcy is best for you. The three main types:

o   Chapter 7: A trustee is appointed to take over your property, which can be sold to pay creditors. You can keep some personal items and maybe some real estate. You must pass a “means test” to verify that you really cannot afford to pay your creditors.

o   Chapter 13: You can usually keep all you rproperty, but you must have wages or other regular income, and you must agree to pay part of your income to creditors over time. The court must approve your repayment plan. A court-appointed trustee will collect the payments and monitor your plan.

o   Chapter 11: Mostly used by businesses (small or large), this option lets you continue to run your business. There is no trustee unless the court decides that one is necessary.

·     Your bankruptcy can appear on your credit report as long as ten years. This can affect your ability to get mortgages or other credit.

·     A bankruptcy discharge officially states that you do not have to pay most of your debts. Some debts generally cannot be discharged, such as many taxes, child support, alimony, student loans and court fines.

·     A bankruptcy discharge only covers debts from before you filed your petition, and only includes debts you included in your petition.

·     A judge can deny your discharge if your petition is incomplete, contains false information, or if you hide property.

·     You can receive a Chapter 7 discharge once every eight years.

·     Some debts are secured by property, such a mortgage or a car loan. You do not have to repay a secured debt after discharge, but the creditor can still take the property from you.

·     Even if you can discharge a debt, you may want to promise to pay it even after discharge. An example might be a car loan you agree to keep paying because you want to keep your car. You do this with a “Reaffirmation Agreement”, which must follow special rules.

·     If your bankruptcy petition and supporting schedules are true, accurate and complete, and you have all necessary backup documentation, you generally are only required to appear at a trustee’s meeting once in a Chapter 7 case, and you usually will never even see the judge.